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Aussie UP on low unemployment rate, high commodity prices

A 23% decline in the price of coking coal to about $172 per ton weakened the Aussie in early January. The weakness was also aided by a lower-than- anticipated retail sales growth of 0.2% m-o-m in November.

On the contrary, the rise in the price of crude oil from $51.07 to $54.32 per barrel enabled the Canadian dollar to strengthen against its rivals including the Aussie.

However, from a low of 0.9650, the AUD/CAD pair reversed trend in mid-January due to an increase in the US crude inventories.

The Bank of Canada’s hint about a possible rate cut also ensured a consolidation of the AUD/CAD pair at 0.9980 levels. As explained below, there are several factors which indicate the possibility of another round of uptrend in the AUD/CAD pair.

Last week, the price of coking coal fell to a low of about $150 per ton last week, from a high of $308 in October 2016. However, it is still more than 100% higher than the February 2016 price of about $70 per ton. News has emerged that the Chinese authorities are looking at the possibility of bringing back the 276-day working rule for mines. Such a decision would stabilize the price of coking coal. Iron ore, the other major export commodity of Australia, is already trading near August 2014 high of $93 per ton.

The Australian government is expected to receive billions of dollars in additional tax revenues because of the price rise.

According to the Australian Bureau of Statistics, the economy added 13,500 jobs in January. The reported figures were lower than the upwardly revised 16,300 jobs in the prior month, but higher than analysts’ expectation of an addition of 9,700 jobs. The overall unemployment rate stood at 5.7% in January, down from 5.8% in the prior month, but in line with the market’s expectations

In the case of Canada, analysts at Morgan Stanley believe that the market has not adequately priced the issues that may arise in the future due to the tough “America First” policies of Trump.

The border adjustment tax, which aims to levy a 20% tax on imports from all countries, is also expected to hurt Canada’s economy. Furthermore, Morgan Stanley strategists are also of the opinion that the market is yet to completely price in the possibility of a rate cut by the Bank of Canada in the near future. Thus, considering the situation in both the countries, it would be safe to argue that the AUD/CAD would remain bullish in the short-term.

The AUD/CAD pair now trades comfortably above the 50-day moving average of 1.0025. As indicated in the price chart below, a major support exists for the pair at 0.9980. The upward momentum is also confirmed by the RSI indicator’s reading of over 50.

AUD/CAD Pair: February 20th 2017

AUD/CAD Pair: February 20th 2017

A long position would enable a Forex trader to gain from the uptrend of the AUD/CAD pair. The suggested trade can be opened near 1.0020, with a stop loss order below 0.9900. The profit can be booked near 1.0220, which reflects a risk to reward ratio of about 1:2.

An investment made in a high or above option would enable a binary trader to realize gains of up to 72% in short span of time, if the forecast turns out to be true. The call option equivalent should be added to the portfolio when the pair trades near 1.0020. The binary trader should choose a contract that has a validity period of at least one week.


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